NBC sees increased confidence in riel after dollar buys in 2017

The central bank injected $915 million worth of riel into the economy last year by buying up US dollars with the local currency, stabilising the exchange rate amid higher demand for riel, according to the bank’s latest report.

The National Bank of Cambodia’s (NBC) annual report, released yesterday, said the bank purchased US dollars 125 times in 2017 at an average exchange rate of 4,050 riel for $1.

Chea Serey, the NBC’s director-general, said the $915 million total for 2017 was 11.4 percent higher than 2016, reflecting an increase in overall confidence in the use of the local currency.

She added that 54 percent of the additional riel in circulation had been absorbed by commercial banks, while the rest went to money changers.

“[The greater injection of riel] reflects the increasing demand of riel in the market, which has paralleled the economy’s growth,” she said during the NBC’s annual meeting yesterday.

In July, Serey noted that the riel’s market share was still dwarfed in a heavily dollarised economy, in which the US dollar comprises 83 percent of currency in circulation.

The central bank predicts in its annual report that its exchange of riel for dollars will reach $1.02 billion this year, amounting to another 12 percent increase. Nevertheless, the riel is still projected to slightly appreciate, to about 4,037 riel per $1 in 2018.

Sean Thorninn, a lecturer in economics at the University of Cambodia and an expert in Cambodia’s financial landscape, said tax reforms had contributed significantly to the increasing demand for riel as taxpayers were required to fulfil their obligations in the local currency.

“Overall, it is a good sign of the central bank’s performance as well as the acceleration of local currency consumption,” he said.

However, the central bank continued to be hamstrung by the highly dollarised economy, which limited its policy options to the purchase of dollars and to changes in reserve requirements, Thorninn added.

Further measure to encourage the adoption of riel could include requirements to pay utility bills in riel and to list prices in riel, he said.

“Once the circulation of our currency in the economy gets bigger, then the central bank will be able to implement many other monetary policies more efficiency,” he said.

So Phonnary, vice president of Acleda Bank, said the riel’s circulation in the economy would further expand as financial operators worked to comply with NBC regulations requiring at least 10 percent of their total outstanding loans to be in riel by the end of 2019.

“More and more financial institutions are increasing their loans in Khmer riel to comply with the NBC’s regulation,” she said, adding that only 5 percent of Acleda’s outlanding loans were in riel. “The consumption of riel in the market will increase very strongly in the next few years.”

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